Dubai's Law No. 7 of 2025: What Contractors Need to Know About Prior Approval for Subcontracting

Dubai's construction industry relies heavily on subcontracting, with major projects routinely delivered through networks of specialist contractors. Dubai's new contracting framework, introduced under Law No. (7) of 2025 Regulating Contracting Activities in the Emirate of Dubai, strengthens regulatory oversight by enhancing contractor accountability, enforcing classification requirements and imposing stricter controls on subcontracting arrangements. One of the framework's key features is its emphasis on obtaining prior approval and ensuring that subcontractors are properly licensed, registered and engaged only within their approved classification.

 

For contractors, developers and project owners, the consequences of non-compliant subcontracting can be significant, extending beyond regulatory penalties to contract termination, delay claims, defects liability and payment disputes.

The Prior Approval Requirement

Article 16 of Law No. 7 of 2025 establishes the general rule that contractors must execute the contracted works using their own technical staff and within the limits of their licensed classification. Subcontracting is therefore permitted only as an exception, provided it is carried out in accordance with the statutory framework and with the prior approval of the competent authority.

Article 17 permits a contractor to assign part of the agreed works to another contractor only where the prescribed statutory conditions are satisfied. These include ensuring that subcontracting is not prohibited under the main contract, that the nature of the works does not require the main contractor to perform them personally under the contract or the competent authority's requirements, that the subcontractor is duly licensed and registered, that its approved activity corresponds with the subcontracted works, that the competent authority is notified, and that prior approval is obtained.

The concept is not entirely new. Dubai's public procurement legislation has long prohibited contractors from engaging subcontractors without prior approval from the relevant authority while expressly maintaining the main contractor's liability for the performance of the works. Similar principles also exist in federal procurement legislation, which requires written approval before subcontracting and confirms that the primary contractor remains jointly responsible for execution of the contract.

Why Classification and Technical Qualification Matter

The new framework is closely linked to Dubai's contractor classification system. Contractors are registered and classified according to their technical capabilities, experience, financial standing and the categories of work they are authorised to perform. Engaging an unclassified or improperly classified subcontractor may indicate that it does not satisfy the statutory registration or classification requirements.

From a risk management perspective, contractors should therefore undertake comprehensive due diligence before appointing subcontractors, including verification of:

• Contractor classification and registration status;
• Trade licence validity;
• Technical qualifications and certifications;
• Relevant project experience; and
• Compliance history with regulatory authorities.
  
  

Failure to undertake these checks may expose contractors to significant contractual and regulatory consequences.

Unauthorised Subcontracting and Termination Risks

One of the most serious consequences of unauthorised subcontracting is the possibility of contract termination.

Construction contracts in Dubai frequently contain provisions requiring employer consent before portions of the works may be subcontracted. The new regulatory framework reinforces these contractual requirements by creating independent statutory obligations relating to approval and contractor classification.

Depending on the terms of the construction contract, unauthorised subcontracting may expose the contractor to contractual remedies in addition to any regulatory consequences under Law No. 7 of 2025. Where a contractor engages an unapproved subcontractor, several outcomes may arise:

• The employer may issue a notice of default.
• The contractor may be required to remove and replace the subcontractor.
• Progress payments may be withheld.
• The contract may be terminated for material breach.
• Administrative penalties may be imposed under Article 22, including fines, suspension from practice, downgrading of classification, deregistration and cancellation of competency certificates.
  
  

Importantly, termination disputes often arise not because the subcontractor performed poorly, but because the statutory approval process itself was ignored.

Delay Liability Remains with the Main Contractor

A common misconception in construction projects is that delays caused by subcontractors are solely the subcontractor's responsibility.

Law No. 7 reinforces the contractor's continuing responsibility by requiring effective supervision of subcontractors, while procurement legislation continues to place responsibility for subcontracted works squarely on the main contractor.

Accordingly, where an unapproved subcontractor causes delays through inadequate manpower, technical deficiencies or poor project management, the employer's claim will ordinarily be directed against the main contractor rather than the subcontractor.

This can trigger:

• Liquidated damages claims;
• Extension-of-time disputes;
• Recovery of completion costs;
• Suspension of project certifications; and
• Additional financing and overhead costs.
  
  

Although the contractor may subsequently pursue the subcontractor under the subcontract agreement, this does not prevent the employer from enforcing its rights against the contractor in the first instance.

Defects Liability and Quality Issues

Where defects are traced to subcontracted works, employers often discover that the subcontractor is no longer operational or lacks sufficient resources to carry out remedial work.

Even where a subcontractor has received the necessary approval, the main contractor remains responsible for supervising the works and ensuring compliance with contractual specifications, applicable regulations and professional standards. Approval does not relieve the contractor of its contractual obligations or supervisory duties.

Where unqualified subcontractors have been engaged, the contractor may face greater difficulty defending defect claims, particularly if it cannot demonstrate adequate supervision and proper due diligence during the appointment process.

Payment-Chain Disputes

Federal procurement regulations recognise these risks and permit direct payment mechanisms to subcontractors in limited circumstances, subject to prior approval requirements and contractual safeguards. Law No. 7 of 2025 does not regulate payment mechanisms between contractors and subcontractors; this position derives from federal procurement legislation rather than Dubai law.

Where subcontracting has occurred without approval, payment disputes can become even more complicated. Questions frequently arise regarding:

• Whether the subcontract was validly formed;
• Whether the subcontractor is entitled to payment;
• Whether the employer can reject claims associated with unauthorised works; and
• Whether retention monies should be released.
  
  

Such disputes frequently escalate into parallel proceedings involving employers, contractors and subcontractors, increasing both costs and project delays.

Conclusion

Dubai's new contracting law reflects a clear policy direction towards greater accountability, enhanced transparency and stronger control over who performs construction work in the Emirate.

For contractors, subcontracting can no longer be regarded as merely an operational decision. Engaging subcontractors without complying with the statutory approval, licensing and classification requirements now carries significant legal and commercial risks. Unauthorised subcontracting may result in regulatory sanctions, contract termination, delay claims, defects liability and complex payment disputes. Ultimately, responsibility for the performance of the works remains with the main contractor.

In practice, contractors should ensure that every proposed subcontractor is appropriately classified, technically competent and approved through the prescribed channels before any work begins. In Dubai's evolving construction regulatory landscape, compliance with subcontracting requirements is no longer a procedural formality — it is a fundamental element of effective project risk management.

 

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